HABITAT FOR HUMANITY OF ORANGE COUNTY, INC. (A NON-PROFIT ORGANIZATION) INDEPENDENT AUDITORS REPORT

Transcription

1 HABITAT FOR HUMANITY OF ORANGE COUNTY, INC. (A NON-PROFIT ORGANIZATION) INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Page Number INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS Statements of financial position 2 Statements of activities 3-4 Statements of cash flows 5-6 Notes to financial statements 7-16

3 B A L S E R, H O R O WITZ, F R A N K & W A K E L I N G A N A C C O U N T A N C Y C O R P O R A T I O N C E R T I F I E D P U B L I C A C C O U N T A N T S INDEPENDENT AUDITORS REPORT To the Board of Directors Habitat for Humanity of Orange County, Inc. Santa Ana, California We have audited the accompanying statements of financial position of Habitat for Humanity of Orange County, Inc. (the Organization) as of, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Organization's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Habitat for Humanity of Orange County, Inc. as of June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Balser, Horowitz, Frank & Wakeling BALSER, HOROWITZ, FRANK & WAKELING Santa Ana, California October 28, N. T U S T I N A V E., S U I T E S A N T A A N A, C A L I F O R N I A T E L E P H O N E ( ) F A X ( ) M E M B E R S : A M E R I C A N I N S T I T U T E O F C E R T I F I E D P U B L I C A C C O U N T A N T S A N D C A L I F O R N I A S O C I E T Y O F C E R T I F I E D P U B L I C A C C O U N T A N T S

4 STATEMENTS OF FINANCIAL POSITION Assets Cash and cash equivalents $ 1,925,096 $ 2,026,703 Promises to give 622, ,225 Other receivable 429,188 Inventory - Homes for sale 1,136, ,405 Inventory - ReStores 244, ,699 Prepaid expenses and deposits 95, ,622 Housing assets, at net realizable value 5,197,050 3,989,648 Mortgages receivable, net of unamortized discount 3,028,022 3,108,365 Property and equipment, net 126, ,617 Total assets $ 12,803,998 $ 10,304,284 Liabilities Accounts payable and accrued expenses $ 558,722 $ 455,343 Property tax and insurance impounds 77, ,821 Deferred mortgage receipts 84,565 51,899 Notes payable 2,249,115 1,080,803 Security deposits 63,057 36,252 Total liabilities 3,033,127 1,732,118 Net assets Unrestricted 4,240,099 4,021,378 Temporarily restricted 5,530,772 4,550,788 Total net assets 9,770,871 8,572,166 Total liabilities and net assets $ 12,803,998 $ 10,304,284 See accompanying notes and independent auditors' report 2

5 STATEMENTS OF ACTIVITIES For the Years Ended Unrestricted net assets Support and revenues Contributions $ 1,177,460 $ 1,311,514 Donated materials and services 189, ,173 Interest income 261, ,814 Rental income 89,848 99,450 ReStore revenues 2,090,108 1,648,177 Special events revenues 188, ,750 Gain on disposition of asset 8,481 Other income 27,814 7,168 Total unrestricted support and revenues 4,032,994 3,782,046 Net assets released from restrictions 3,003,226 7,482,077 Total unrestricted support, revenues and reclassifications 7,036,220 11,264,123 Expenses Program services: Construction costs 3,708,120 4,659,734 ReStore expenses 2,035,781 1,528,434 Special events 187, ,089 Public relations 406, ,639 Faith relations 115, ,652 Family services 221, ,864 Rental expenses 13,868 73,237 Contributions to Habitat for Humanity International 31,328 34,528 Costs in excess of estimated sales price 2,433,075 5,371,197 Less costs capitalized as housing assets (3,125,380) (3,976,251) Total program services 6,026,714 8,690,123 See accompanying notes and independent auditors' report 3

6 STATEMENTS OF ACTIVITIES For the Years Ended Unrestricted net assets (continued) Supporting services: General and administrative 492, ,120 Fund raising 298, ,086 Total supporting services 790, ,206 Total expenses 6,817,499 9,495,329 Change in unrestricted net assets 218,721 1,768,794 Temporarily restricted net assets Contributions 2,491,118 3,193,283 Donated materials and services 407, ,887 Donated land 1,085,000 2,912,600 Net assets released from restrictions (3,003,226) (7,482,077) Change in temporarily restricted net assets 979,984 (1,009,307) Change in net assets 1,198, ,487 Net assets, beginning of year 8,572,166 7,812,679 Net assets, end of year $ 9,770,871 $ 8,572,166 See accompanying notes and independent auditors' report 4

7 STATEMENTS OF CASH FLOWS For the Years Ended Cash flows from operating activities Change in net assets $ 1,198,705 $ 759,487 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 36,353 37,715 (Gain) loss on disposition of assets (8,481) Changes in operating assets: Housing assets (1,207,402) (1,412,812) New mortgages receivable (251,329) (2,124,220) Payments on mortgages receivable 398, ,408 Discounts on mortgage receivable (125,418) 1,078,531 Buybacks of mortgages 58,775 72,008 Promises to give (383,909) 156,890 Other receivable (429,188) Due from Humanity Housing, Inc. 15,000 Inventory - Homes for sale (692,719) 334,174 Inventory - ReStore (40,839) (83,861) Prepaid expenses and deposits 70,902 (6,955) Changes in operating liabilities: Accounts payable and accrued expenses 103, ,174 Deferred mortgage receipts 32,666 (49,640) Security deposits 26,805 (12,091) Property tax and insurance impounds (30,153) 3,734 Net cash flows from operating activities (1,243,538) (737,458) Cash flows from investing activities Purchase of property and equipment (45,508) (13,825) Proceeds from insurance 19,127 Net cash flows from investing activities (26,381) (13,825) See accompanying notes and independent auditors' report 5

8 STATEMENTS OF CASH FLOWS For the Years Ended Cash flows from financing activities Loan proceeds 1,671, ,400 Loan principal payments (503,513) (130,707) Proceeds from line of credit 80,000 Payments on line of credit (80,000) Net cash flows from financing activities 1,168,312 78,693 Net change in cash and cash equivalents (101,607) (672,590) Cash and cash equivalents, beginning of year 2,026,703 2,699,293 Cash and cash equivalents, end of year $ 1,925,096 $ 2,026,703 See accompanying notes and independent auditors' report 6

9 Note 1 Summary of significant accounting policies This summary of significant accounting policies is presented to assist in understanding the accompanying consolidated financial statements. The financial statements and notes are the representations of Habitat for Humanity of Orange County, Inc. (the Organization) s management, which is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting policies and have been consistently applied in the preparation of the financial statements. Nature of activities Habitat for Humanity of Orange County, Inc. is a non-profit corporation under Section 501(c)(3) of the Internal Revenue Code and was incorporated on January 26, 1988, under the laws of the State of California. The Organization is an ecumenical grass-roots Christian ministry whose purpose is to encourage, promote, and assist in the building and redevelopment of housing for low income families in Orange County, California. The Organization aims to accomplish its purpose through privately operated and financed programs to sell such housing to low-income families at cost, utilizing non-interest bearing instruments. The Organization also operates two ReStore retail outlets that sell predominantly donated materials to the public. Purchased product represents approximately 25% of total retail sales. Basis of accounting The financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities. Basis of presentation The Organization reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. At, there were no net assets or activities classified as permanently restricted net assets. Use of estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from these estimates. Cash and cash equivalents For the purposes of the statements of cash flows, the Organization considers all temporary cash investments purchased with a maturity of three months or less to be cash equivalents. 7

10 Note 1 Summary of significant accounting policies (continued) Concentration of credit risk The Organization maintains its cash deposit accounts at two commercial banks located in Southern California. Cash accounts at banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The balances in these accounts may, at times, exceed federally insured limits. Management believes the Organization is not exposed to any significant risk in connection with cash accounts. Other receivable Other receivable consists of amounts to be funded as a reimbursement of expenses in accordance with a Disposition and Development Agreement with the City of Yorba Linda. Also see Note 12. Promises to give Unconditional promises to give are recognized as support and revenues or gains in the period promised and as assets, decreases of liabilities, or expenses depending on the form of the benefits to be received. Inventory - ReStores The Organization operates two ReStore retail outlets that sell predominantly donated materials to the public. Donated inventories on hand at year end are valued at estimated fair market value. Purchased inventories are valued at the lower of cost or market. Mortgages receivable Mortgages receivable are non-interest bearing and exchanged for homes to low-income families, fulfilling the Organization s exempt purposes. The notes are recorded at their present value based on the prevailing market rate of interest at the time the mortgage was originated. Prevailing market rates are determined annually and provided by Habitat for Humanity International. The difference between the face amount of the note and its present value is accounted for as a discount and recorded as a reduction in the receivable. The resulting discount is amortized over the life of the mortgage using the interest method. Amortization of the discount is recognized as interest income in the statements of activities. Also see Note 3. 8

11 Note 1 Summary of significant accounting policies (continued) Housing assets Housing assets represent amounts expended for the construction of new or refurbished homes and include costs of construction, donated materials and donated land. Housing assets are recorded at cost if materials are purchased and at estimated fair market value if donated. The Organization constructs housing for sale to low income families. In furtherance of this purpose a substantial amount of the cost of housing assets is not passed on to the homeowners but absorbed by the Organization. When the sales price of homes can be reasonably estimated, housing assets are reduced to their net realizable value. The reduction in these housing assets is recorded as costs in excess of estimated sales price in the statements of activities. Property and equipment All acquisitions of property and equipment in excess of $2,000 and all expenditures in excess of $2,000 for repairs, maintenance, and renewals that materially prolong the useful lives of assets are capitalized. Property and equipment is carried at cost, or, if donated, at the approximate market value at the date of donation. Depreciation is computed over the estimated useful lives of the assets on a straight-line basis. Depreciation expense for the years ended June 30, 2009 and 2008, was $36,353 and $37,715, respectively. Deferred mortgage receipts At various times approved homeowners reside in homes which have not closed escrow. From the rental payments received from these homeowners, the Organization designates a portion of these rents to be applied to the homeowners mortgage once escrow closes. Reclassifications Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. The reclassifications have no effect on the end result. 9

12 Note 1 Summary of significant accounting policies (continued) Revenue recognition As required by generally accepted accounting principles, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted net assets depending on the existence or nature of any donor restrictions. All donor-restricted net assets are reported as an increase in temporarily restricted or permanently restricted net assets depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. During the years ended, there were no contributions received that were classified as permanently restricted. Donated services Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization. Numerous volunteers also provided many services throughout the year that are not recognized as contributions in the financial statements since the criteria for recognition are not met. Donated services are recognized as revenues in the period received and as assets or expenses depending on the services performed. Functional allocation of expenses The costs of providing various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the program and supporting services benefited. An additional program service is costs in excess of estimated sales price. This includes the cost of offering a zero percent interest loan to families, actual costs incurred in excess of the sales price, donated land, and donated services. Income taxes The Organization is exempt from Federal and California income tax under Internal Revenue Code Section 501(c)(3). The Organization is subject, however, to Federal and California income tax on unrelated business income as stipulated in Internal Revenue Code Section 511 and Regulation Section During the years ended, the Organization had revenue from an activity that constitutes unrelated business income. However, since applicable expenses of the activity exceeded the income from the activity, the Organization did not have unrelated business taxable income, and therefore incurred no tax liability due to unrelated business income. 10

13 Note 2 Promises to give HABITAT FOR HUMANITY OF ORANGE COUNTY, INC. Promises to give are substantially restricted to payment for the costs of construction for several projects. The promises to give as of, were unconditional and all were due within one year. Note 3 Mortgages receivable In general, mortgages receivable carry imputed interest rates of either 7% or 8% and are presented in the accompanying statements of financial position net of unamortized discount. The face amount and unamortized discount of mortgage notes receivable as of June 30, 2009 and 2008, were $6,380,015 and $6,593,777, respectively. Imputed interest rates for June 30, 2009 and 2008, ranged from 7% to 8%. Interest income resulting from the amortization of discounted notes for the years ended, totaled $236,584 and $241,196, respectively. Note 4 Property and equipment A summary of property and equipment follows: Equipment $ 224,335 $ 199,349 Automobiles 110, ,159 Improvements 49,354 49,354 Total property and equipment 383, ,862 Less: accumulated depreciation (257,721) (231,245) Property and equipment, net $ 126,127 $ 127,617 11

14 Note 5 Notes payable HABITAT FOR HUMANITY OF ORANGE COUNTY, INC. Notes payable at, were comprised of the following: Loan payable at an annual interest rate of 4%, dated August 6, 1993, to Residential Funding Corporation, collateralized by a combination of the Organization's mortgage loans receivable, personal property rights, title and interest in all escrow accounts, and other related assets. The loan is payable in quarterly installments of $11,730, including interest, through July Loan payable dated April 30, 2006, to Habitat for Humanity International, collateralized by mortgage loans receivable, with principal and interest at an annual rate of 3.89% payable in monthly installments of $8,321 through March 31, Loan payable dated May 2, 2007, to Neighborhood Housing Services of Orange County, a private public benefit corporation, with interest only payments at an annual rate of 3.5% payable quarterly beginning June 30, This loan expires on the earlier of close of construction, or 18 months from date of loan, at which time all unpaid principal and interest will be due. This note was paid in full on January 31, Loan payable dated November 9, 2007, to Habitat for Humanity International, collateralized by mortgage loans receivable, with principal and interest at an annual rate of 4.0% payable in quarterly installments of $6,555 through December 31, Unsecured loan payable dated October 8, 2008, to the City of San Juan Capistrano. The loan is payable on a per unit basis and requires certain payments at certain milestones. This note is non interest-bearing and matures July 1, See Note $ 101,565 $ 143, , , , , , ,174-12

15 Note 5 Notes payable (continued) Loan payable dated December 16, 2008, to Sunwest Bank, collateralized by real property in the city of San Juan Capistrano, accruing interest at an annual rate of 5.0%, with all principal and accrued interest due on December 31, Loan payable dated April 30, 2009, to Habitat for Humanity International, collateralized by mortgage loans receivable, with principal and interest at an annual rate of 5.3% payable in quarterly installments of $6,366 through June 30, Unsecured loan payable dated July 7, 2009, to the City of Yorba Linda. The loan is payable in three payments of 1/3 of the loan each, at the close of escrow on the three homes. This note is non interest-bearing and matures at the close of escrow on the third home. See Note , , ,251 - Total notes payable $ 2,249,114 $ 1,080,803 Maturities of notes payable for the years ended June 30, are as follows: 2010 $ 209, ,107, , , ,239 Interest expense related to notes payable for the years ended, totaled $28,704 and $32,883, respectively. 13

16 Note 6 Temporarily restricted net assets Temporarily restricted net assets were comprised of the following at June 30: Land $ 4,952,360 $ 3,867,360 Fullerton 101, ,602 Anaheim II - 419,578 Westminister II 365,685 - Operation Home Delivery 8,991 21,543 Annual Golf Classic 15,000 - Other future projects 86, ,705 Total temporarily restricted net assets $ 5,530,771 $ 4,550,788 Note 7 Operating leases The Organization leases office space, ReStore warehouse/retail space, and various office equipment under operating leases totaling $52,257 per month for terms ending from May 2010 through March The lease provides for an option to cancel after five years, and the Organization plans to exercise that option. Rental expenses related to these leases totaled $642,131 and $622,328 for the years ended, respectively. Future minimum lease payments for operating leases for the years ended June 30, are as follows: 2010 $ 624, , ,

17 Note 8 Related party transactions Habitat for Humanity International The Organization is affiliated, by agreement, with Habitat for Humanity International, a taxexempt organization incorporated under the laws of the state of Georgia. The Organization has been added to the roster of exempt subordinates by the Internal Revenue Service within a group exemption granted to Habitat for Humanity International under Section 501(c)(3) of the Internal Revenue Code. Under its affiliate agreement the Organization is expected to contribute a certain portion of its unrestricted cash donations to Habitat for Humanity International to continue its international programs. These contributions are accounted for as program services and are recorded when due. The Organization has entered into three loans through Habitat for Humanity International. See Note 5. Note 9 Agreement with Humanity Housing, Inc. The Organization has an Agreement of Purchase and Sale and Joint Escrow Instructions (the Purchase Agreement ) with an unrelated entity, Humanity Housing, Inc., a California non-profit corporation. Humanity Housing, Inc. is working in cooperation with the Organization pursuant to the HOME program regulations requiring Humanity Housing, Inc. to convey the properties and assign all rights and obligations to the Organization which has qualified to rehabilitate the properties, complete the housing construction, and offer for sale and sell the completed units to eligible homebuyers. During the year ended June 30, 2008, property with a book value of $425,000 was transferred from Humanity Housing, Inc. to the Organization for a new development currently under construction. During the year ended June 30, 2009, no properties were transferred between the entities. Note 10 Subsequent event In July 2008, the Organization executed a Disposition and Development Agreement with the Redevelopment Agency of the City of Yorba Linda. The agreement consists of a loan commitment in the amount of $800,000 and a grant commitment in the amount of $106,919, to be funded as a reimbursement of expenses in accordance with the schedule of performance included in the agreement. On June 23, 2009, the Organization submitted three (3) requests for reimbursement totaling $340,251 in loan funds and $88,937 in grant funds (See Note 5). The reimbursement funds were received on July 7, 2009, and were recorded as other receivable at June 30,

18 Note 11 Contingency HABITAT FOR HUMANITY OF ORANGE COUNTY, INC. The following contingency is in reference to the note payable to the City of San Juan Capistrano disclosed in Note 5. Management does not expect to complete all twenty-seven (27) units before the maturity date of July 1, 2010, and therefore expects to default on this specific performance clause related to the loan; however, management anticipates the Organization will be able to negotiate new performance terms with the City of San Juan Capistrano at that time. Note 12 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 28,704 $ 32,883 Noncash investing activities: Contributed housing assets $ 3,125,380 $ 3,976,251 16